ANALYSIS: A tale of two crops as Argentina, Brazil trade weather woes

25 Jan 2024 | Marcela Caetano

As Brazilian and Argentinian agricultural production reaches critical stages in their development, the two countries look set to be permanently locked in constant competition as they battle for global market share. 

While their common fates may be entwined as agricultural exporters, both have experienced near-diametrically opposite growing experiences in recent seasons, with this year's experience mirroring the previous year. 

As Brazil’s soybean crop production continues to be cut lower and Argentina’s output to be revised higher, the two South American countries have effectively switched places from a year ago, when Brazil was headed for a record crop and Argentina had its worst production in 15 years.  

In the past three weeks, the optimism around output estimates that expected another record-breaking Brazilian crop was replaced by numerous reductions in projections, that brought estimates down from 160 million mt, to levels around 149.7 million mt.

Now, Brazil's soybean farmers association (Aprosoja) has put its estimate at 135 million mt, as producers argue the current estimates do not reflect the reality of crops and neither do prices. 

“What is reducing production is the loss of productivity caused by below-normal rainfall and too much heat, especially in Mato Grosso, but in other states too,” Daniele Siqueira from Agrural told Agricensus.

The recent rains have brought some relief to crops but it's not clear yet if this will allow some of the estimates to recover and return to higher levels, or simply arrest the losses.

“Brazil has lost around 12 million mt of its potential, and I understand new reductions in estimates tend to be minor, resulting in an output around 150-151 million mt,” Safras & Mercado analyst Luiz Fernando Roque told Agricensus.

Despite this scenario, soybean futures started the year with three consecutive weeks of losses on CME - reaching the lowest levels in two years – and were down 3.89% so far this year.

Any support that could have been found in Brazil’s lower production tumbled as Argentina’s crop estimates continued to grow.

The Rosario Grains Exchange (BCR) official estimate for the country´s soybean crop is 52 million mt, but its Chief of the Agriculture Strategic Guide, Cristián Russo, saw good possibility for it to smash records as the season developed.

To do that, Argentina's production which need to surpass the 60 million mt crop harvested in the 2014/15 crop.  

The US Department of Agriculture pegged the Argentinean crop at 50 million mt in its January World Agriculture Supply and Demand Estimates (Wasde) report, while the market expected it to be raised to 49 million mt.  

The reason for the optimism is mostly the weather.

The strong El Niño guaranteed abundant rain in the country in the sowing period, allowing recovery of soil moisture and favorable conditions for crop development after many years of drought.   

“At the moment, crop conditions are excellent,” analyst Javier Preciado Patiño of Ingeniero Agronomo told Agricensus. 

A year earlier the scenario was the opposite.

“Last year's losses were due to an extreme lack of water, today there are areas that will not be sown - at much lower levels than a year ago - due to excess water and hail,” Russo told Agricensus.

Argentina faced the worst drought in 60 years due to a third consecutive La Niña in the 2022/23 crop and ended up harvesting only 20 million mt of soybeans last year.

The last time Argentina's harvest reached that level was in 1998/99, when the country sowed only 8.4 million mt – almost half of the 16 million mt planted in the 2022/23 crop.  

Outside of the regions themselves, international markets and traders see Brazil and Argentina as "South America" and not as individual countries.

Last year, Brazil’s record crop compensated for most of Argentina’s losses, with both countries combined producing around 180 million mt.

“In 2024, even with Brazilian losses, the two countries will harvest around 200 million mt, above last year’s figures, ” Roque told Agricensus.

“For now, Argentina compensates largely for Brazil´s losses”, Siqueira added.  

That said, as long as South American output is significantly higher than last year, and demand remains lackluster, consistent price increases might be challenging.

What’s next

As the crop is underway in both countries there is room for changes, mostly in Brazil.

In many states such as Paraná, Mato Grosso do Sul, São Paulo, and Minas Gerais, the crop size will be defined in the next few months while across the Matopiba states and Rio Grande do Sul, definition will occur even later.

“If everything goes well in these states until the end of the harvest, we could have an output of around 150 million mt,” Siqueira added. 

According to Siqueira, the futures in Chicago do not reflect the possibility of more losses at the moment.

“If we have weather problems in February, leading to reductions in the later sowing areas of Paraná, Matopiba and especially Rio Grande do Sul, where a recovery from last year’s losses is anticipated, we could see CME prices react,” she said.

But there is nothing is guaranteed yet since planting is finishing now and these states won't harvest soybeans at full speed until April.”

“For Argentina as well as Rio Grande do Sul, February and March are still decisive months”, Siqueira said.

In the past few days, soybean futures rebounded in Chicago as temperatures reached a 10-day high and dry weather forecast for Argentina, but sources are skeptical of serious impacts on the country´s output.

According to Rural Clima, Argentina will see dry and hot weather in the first week of February, with regular rains expected to return on February 3.

“I don't think this should affect the condition of the crops since it rained well earlier, and the soil has a good reserve of water unless the period of dry, hot weather extends beyond the forecast.” Ludmila Camparotto, agro-meteorologist at Rural Clima consultancy told Agricensus.